Tariff Determination: Role of TAMP in fixing rates at ports

Role of TAMP in fixing rates at ports

The Tariff Authority for Major Ports (TAMP) was constituted in April 1997 to serve as an independent authority for regulating tariffs, both cargo and vessel related, as well as rates for lease of properties with respect to major port trusts and private operators located within their premises. It came into existence through amendments to the Major Port Trusts Act, 1963, and the Indian Ports Act, 1908.

Need for regulation

After the announcement of the private participation guidelines for the port sector in October 1996, the government felt that port trusts should not regulate their own tariffs as well as those for private operators. Since the port trusts would receive a revenue share from the operator, a conflict of interest would arise if they fixed the tariff rates. Second, as both port trusts and port operators are competitors, entrusting the responsibility of fixing tariff rates to the port trusts would not be fair. Third, there was a need to safeguard the interests of all users. To meet these objectives, a decision to constitute a neutral regulator was taken. TAMP is headed by a chairperson and has two members, all appointed by the central government.

The authority has jurisdiction over only major port trusts and private terminals located therein. It is responsible for prescribing the rates for services provided and the facilities offered by them. Apart from the core services, TAMP also fixes the rates for leasing port trust properties. The authority is empowered to notify not only the rates but also the conditionalities governing the application of these rates.

Tariff guidelines

While fixing tariffs, TAMP follows the guidelines formulated by the Ministry of Shipping from time to time. These guidelines have evolved over the years. The tariff guidelines of 2005 were applicable to all build-operate-transfer (BOT) operators for whom the bidding process had been completed prior to 2008. It is applicable to around 15 BOT operators. Under these guidelines, tariffs are fixed on a cost plus return model, that is, all the admissible costs and a 16 per cent return is considered while fixing the tariff. The estimates for the next three years are also considered for tariff fixation and tariff revision takes place every three years.

In 2008, the government issued another set of guidelines wherein the tariff was fixed upfront before the bidding process. It was fixed following a normative approach and was set for the entire project period, subject only to an-nual wholesale price index (WPI) indexation at 60 per cent. Under these guidelines, no performance linkage was available to operators.

In July 2013, the 2008 guidelines were improved by the government. Under the new guidelines, a major port trust is allowed the option of choosing the highest upfront tariff fixed at any major port trust, and adopt it for its public-private partnership (PPP) project. If this is not feasible, then the port trust has the option of coming up with a proposal on the basis of the given norms. If an operator achieves the performance standard, it can charge an additional 15 per cent tariff besides the usual WPI indexation of 60 per cent permissible. This was envisaged to encourage BOT operators and incentivise good performance. Once fixed, the tariff is applicable for 30 years.

In January 2015, the government introduced another policy applicable to all the major port trusts. Earlier, these port trusts were governed by the tariff guidelines of 2005. Under the new policy, an annual revenue requirement (ARR) is estimated and major ports have the flexibility to fix their own rate, provided it is within the ARR. Further, with regard to the lease rent for port lands, TAMP follows land policy guidelines that are issued by the government from time to time.

Major Port Authorities Bill, 2016

The Major Port Authorities Bill was introduced in the Lok Sabha in December 2016 and was intended to replace the Major Port Trusts Act, 1963. It provides for the creation of major port authorities in place of the existing port trusts. It also aims to provide greater autonomy and flexibility to major ports and reduce governmental control over their day-to-day operations. The bill also grants the board of a port authority the power to raise loans from Indian scheduled banks or financial institutions as well as financial institutions outside India, which are compliant with all the laws. For loans above 50 per cent of its capital reserves, the board will require the sanction of the central government. This will provide a major boost to the port sector.

As per the new bill, the board of a major port authority or a committee appointed by the board will fix the scale of rates for port assets and services rendered, which till date is being done by TAMP. Further, a major ports adjudicatory board (MPAB) will be constituted, headed by a high court judge who will act as the presiding officer. It will also have two members who will be appointed by the central government. TAMP will cease to exist on constitution of the MPAB.

Once constituted, the MPAB will perform several functions. It will be responsible for performing functions other than tariff fixation arising from the tariff guidelines of 2005, 2008 and 2013. Further, it will take up dispute resolution between private operators and major port trusts within the framework of the concession agreement. The MPAB will review stressed PPP projects and suggest measures for their revival. Besides these, a grievance redressal mechanism for port users with respect to services rendered by major ports or private operators will also be developed.

Amendments in the model concession agreement

In January 2018, the cabinet approved amendments in the model concession agreement (MCA) in order to make port projects more investor friendly. The amendments envisage the constitution of the Society for Affordable Redressal of Disputes – Ports (SAROD-PORTS) as a dispute resolution mechanism similar to the provision available in the highway sector. The revised MCA provides an exit route to developers by way of divesting their equity (up to 100 per cent) after the completion of two years from the commercial operation date. Under the provision of additional land to the concessionaire, land rent has been reduced from 200 per cent to 120 per cent of the applicable scale of rates for the proposed additional land. Further, the concessionaire will pay royalty on the basis of per metric tonne of cargo/twenty-foot equivalent unit handled, which will be indexed to the variations in WPI annually. This will replace the present procedure of charging royalty equal to the percentage of gross revenue, quoted during bidding and calculated on the basis of an upfront normative tariff ceiling prescribed by TAMP. Further, the concessionaire will also be free to deploy higher capacity equipment, facilities and technologies and carry out value engineering for higher productivity and improved utilisation of project assets. In addition, a complaint portal for port users and a monitoring arrangement has been introduced for maintaining periodic status reports of projects.

Future outlook

TAMP has played an important role in determining tariff rates over the past two decades. With the introduction of the Major Port Authorities Bill and the revised MCA, the investment attractiveness of the port sector is bound to increase manyfold. These changes have been welcomed by industry players and will go a long way in benefiting the Indian port sector.

Based on a presentation by Anuradha Sharma, Director, TAMP, at a recent India Infrastructure conference